Regional cities beware – fast rail might lead to disadvantaged dormitories, not booming economies

Posted on July 18, 2019 by particularkev

Many commuters already travel from regional cities to work in capital cities like Melbourne so what impacts will fast rail have?
Alpha/Flickr, CC BY-NC

Todd Denham, RMIT University and Jago Dodson, RMIT University

Governments are looking to fast rail services to regional cities to relieve population pressures in Sydney, Melbourne and Brisbane. The federal government is funding nine business cases for such schemes. But what economic effect might these fast links have on the regional cities?

The current fast rail schemes seem oriented at relieving population pressures in the major cities rather than a productive regional economic purpose. The minister for population, cities and urban infrastructure recently stated:

… the National Faster Rail Agency begins operating from today [July 1]. The new Agency will oversee the government’s 20-year fast rail agenda, which will connect satellite regional cities to our big capitals. This will allow people to reside in regional centres with its [sic] cheaper housing and regional lifestyle but still access easily and daily the major employment centres.

The argument seems built on a pitch to city workers priced out of metropolitan housing markets. It treats regional towns as remote dormitories for metropolitan workers rather than as regional cities that serve as service hubs and employment centres. But will subsidising metropolitan workers to live in cheaper regional towns have a positive economic effect on those towns?

An unequal relationship

Concern is growing among international observers that fast rail connections between two cities benefit the larger of the pair. Professor Michael Storper observed:

One of the biggest mistakes we’ve made was being naïve about connectivity – give infrastructure and it spreads. Well, often it concentrates. The high-speed train network in France, guess what it did. It advantaged Paris.

While Paris is seen as benefiting the most from the national fast rail TGV service, the regional cities of Lyon and Lille have strengthened their economic positions. The Lyon and Lille fast rail stations form the hub of their respective regional transport networks and have attracted new commercial activity. They also sit at intersections of major European fast rail networks.

It’s a pattern that cannot be easily achieved for Australia’s regional cities due to our widely dispersed settlements. So what does this mean for our regional cities?

Improving transport infrastructure doesn’t just improve regional business access to metropolitan markets. It decrease the costs of trade in both directions. And large cities are typically more productive economically. This is because they offer more specialised goods and services and can leverage the agglomeration effects of shared high-quality labour markets and infrastructure, plus a concentration of skills and knowledge.

Reduced travel times can mean regional businesses become less efficient than metropolitan competitors that can offer a wider range of specialist goods and services. This may lead to regional business closures, employment losses and wage decline. Unless a regional city is able to develop a specialised set of high-skill, high-wage industries that complement or outcompete the metropolis it risks being economically disadvantaged by faster rail.

New regional demand arising from commuter population growth might counter the loss of higher-order regional jobs due to improved transport links. But that will largely be in lower-value retail and personal service sectors. The result will still be a net economic gain for the metropolis.

An influx of commuters earning metropolitan wages might also inflate regional housing markets. This would disadvantage lower-paid regional workers. The beneficiaries of this scenario are likely to be local rentiers, such as landholders and developers who can profit from land-price inflation.

This interest group will likely vocally promote regional fast rail. But sustainable economic prosperity for regional cities requires more than population-driven land speculation.

The example of Geelong

The most advanced of the current Australian proposals is the Geelong-Melbourne route. It has received federal and state funding for planning with an estimated total cost of at least A$10 billion. But planners need to ask how this spending will provide a net economic benefit, and how the benefits will be distributed.

Growth in commuter population and the services this attracts may be seem like a resolution to metropolitan population problems, but could further concentrate higher-paid jobs in Melbourne. Faster commutes mean Melbourne-based firms will have a greater pick of Geelong-based workers, thus consolidating metropolitan competitive advantage. Fast rail thus risks placing Geelong at a competitive disadvantage, with jobs and workers being exported to Melbourne.

Meanwhile the pressure of housing another 145,000 residents in the next 20 years already falls on Geelong, a city of 280,000 people. The strain on infrastructure and services is proportionately greater than would be the case in Melbourne, which has nearly 5 million residents.

What can policymakers do about this?

To resolve this conundrum, thought must be given to what specialised high-value jobs will be attracted to regional cities to accompany fast rail investments, so these cities remain competitive and productive, regionally, nationally and internationally. This might include policies such as relocating public agencies, regional targeting of university-based research and development spending, boosting services such as schools and hospitals, and providing incentives for innovative private companies to relocate to regional towns.

Policymakers should also consider positioning regional cities as rail network hubs in their own right. An example would be connecting Geelong, Ballarat and Bendigo by rail, along with better linkages to national and international airports.

We don’t yet know for sure what the effects of fast rail on regional cities will be. But the impact of this infrastructure needs to be assessed very carefully lest it turns Australia’s regional cities into dependent population dormitories rather than regional dynamos, at vast public expense.

Todd Denham, PhD Candidate, School of Global, Urban & Social Studies, RMIT University and Jago Dodson, Professor of Urban Policy and Director, Centre for Urban Research, RMIT University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Wind and solar cut rather than boost Australia’s wholesale electricity prices

Posted on July 18, 2019 by particularkev

Power failure. It’s gas, not wind, that’s pushing up electricity prices.
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Zsuzsanna Csereklyei, RMIT University

The 2019 Australian Conference of Economists is taking place in Melbourne from July 14 to 16.

During the conference The Conversation is publishing a selection of articles by the authors of papers being delivered at the conference. Others are here.

Wholesale prices in the National Electricity Market have climbed significantly in recent years. The increase has coincided with a rapid increase in the proportion of electricity supplied by wind and solar generators.

But that needn’t mean the increase in wind and solar generation caused the increase in prices. It might have been caused by other things.

Colleagues Songze Qu and Tihomir Ancev from the University of Sydney and I have examined the contribution of each type of generator to wholesale prices, half hour by half hour over the eight years between November 1, 2010 and June 30, 2018.

We find that, rather than pushing prices up, each extra gigawatt of dispatched wind generation cuts the wholesale electricity price by about A$11 per megawatt hour at the time of generation, while each extra gigawatt of utility-scale solar cuts it A$14 per megawatt hour.

Merit order matters

Here’s how.

In Australia’s National Electricity Market, prices are determined at five-minute intervals and averaged over 30-minute intervals for settlement. Generators place bids for supplying electricity to meet the expected demand which are accepted in a “merit order” of cheapest to most expensive.

The final price – awarded to all the bidders accepted – is determined by the final and most expensive bid accepted, which is often a bid by a gas generator.

Wind and utility-scale solar generators bid into the market at low cost because their power is essentially free when the wind is blowing or the sun is shining. They displace higher cost bids, usually from gas or diesel turbines that have high fuel costs. We find this effect on prices (known as the “merit order effect”) has grown as wind and solar generation has grown.

The daily impact of wind and solar on wholesale prices is somewhat lower. A 1 gigawatt per hour increase in daily wind generation
is associated with about a A$1 per megawatt hour decrease in
the average daily wholesale price. The same increase in solar generation is associated with A$2.7 per megawatt hour decrease in daily wholesale electricity prices.

These findings and those of others since 2003 challenge the previous conventional wisdom that mandating renewable generation necessarily increases prices.

So why are prices climbing?

Natural gas prices have been climbing dramatically over the recent years, mainly due to the opening up of east coast export capacity and the integration of the Australian market with international markets. The higher prices have made it more expensive to run gas turbines and have pushed up the price of what is often the last bid to be accepted.

We find the price of natural gas has a strong positive effect on wholesale electricity prices. An increase of A$1 per gigajoule in the natural gas price pushes up wholesale electricity prices by about A$5 per megawatt hour.

Although in recent years the upward price pressure from more expensive gas has overwhelmed the downward pressure from greater wind and solar capacity, it is nevertheless true that wholesale prices are lower than they would have been without renewable generation.

Therefore, a continued expansion of renewables is likely to put downward pressure on wholesale prices for some time.

There’s a case for moving away from gas peaking plants

This means that rather than reconsidering renewables, authorities should reconsider their reliance on gas plants for handling peaks in demand. While peaking plants are more needed with the increased penetration of renewables, there is a case for switching to alternative providers of peaking power, such as large-scale batteries and pumped hydro.

In doing so governments should also consider something else. Wholesale prices that are too low will discourage investment, leading to higher prices down the track.

The lower prices go, the more the government might need to provide investment incentives.

For now, all other things being equal, more wind and solar power means lower wholesale prices. But they’ll have to be watched.

Zsuzsanna Csereklyei, Lecturer in Economics, RMIT University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

They’ve cut deeming rates, but what are they?

Posted on July 15, 2019 by particularkev

Not cutting deeming rates when other rates are falling keeps people off the pension.

Peter Martin, Crawford School of Public Policy, Australian National University

Treasurer Josh Frydenberg has cut the deeming rate for large investments from 3.25% to 3%, and for smaller ones from 1.75% all the way down to 1%, backdated to the start of July.

But what exactly is a deeming rate, and why does it matter so much to about one million Australians on benefits, among them around about 630,000 age pensioners?

It’s a topic I covered in The Conversation mid last week in an explainer that went all the way back to the beginning, or at least the most recent beginning, when treasurer Paul Keating brought deeming rates back to Australia’s benefits system in 1991.

Before that, applicants for the pension were able to pass income tests by ensuring that their assets didn’t earn much income, a service banks and other institutions were happy to provide for them.

From 1991, on applicants for the age pension (and later other benefits) were “deemed” to have earned from their financial assets amounts set by the government, whatever they actually earned.

Of late, deeming rates haven’t kept up

For most of the past two decades both the high deeming rate (which at the moment applies to financial assets in excess of A$51,800 for singles and $86,200 for couples) and also the low deeming rate (for lesser assets) have been below the Reserve Bank’s cash rate, benefiting applicants who could earn more than those low rates while continuing to get benefits.

Deeming rates versus RBA cash rate, July 1996 – July 2019, per cent

Then, beginning with prime minister Kevin Rudd (who, to be fair to him, in 2009 delivered the biggest ever increase in the pension – $100 a fortnight for singles and $76 for couples) and continuing under his successors Gillard, Abbott, Turnbull and Morrision, the government adjusted the deeming rate more slowly, meaning that as the Reserve Bank’s cash rate fell, both the high and low deeming rates ended up above it.

The decisions announced by Frydenberg on Sunday go a long way to putting things right.

The lower deeming rate will once more be close to the cash rate (exactly at the cash rate, for as long as the cash rate stays at 1%). The higher deeming rate will not be, but then it probably shouldn’t be.

The higher rate applies to the return on financial assets (including shares) worth more than $51,800. As Frydenberg pointed out on Sunday, many of those assets return much more, not much less, than the deeming rate:

It could apply to superannuation returns, and that’s averaging around 5.5%. Or to yields on ASX 200 stocks, which are averaging about 4.5%

The low deeming rate is on the face of it unfair, because few bank deposits pay 1%. The special retirees accounts offered by ANZ and the Commonwealth pay 0.25%. Many deposit accounts pay nothing.

But the low rate applies to financial assets all the way up to $51,800 ($86,200 for couples), and to all types of assets. Many pension applicants are likely to earn a total return on those assets well above 1%.

Deeming is by design, rough and ready. There will always be complaints, and of late those complaints had force. They are now back broadly where they should be.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Inequality is growing, but it is also changing as Australia’s super rich evolve

Posted on July 15, 2019 by particularkev

Australia’s super rich are richer than ever, but not like they used to be.
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Salvatore Ferraro, RMIT University

This year’s Australian Conference of Economists takes place in Melbourne on July 14-16.

During the conference The Conversation will publish a selection of pieces written by the authors of papers to be delivered at the conference.

Since the surprise re-election of the Coalition, there has been renewed debate about the role the “aspirational” Australian played in the final outcome. The debate is taking place against the backdrop where income inequality has been growing in most developed countries over the past half-, including in Australia.

Bureau of Statistics figures released on Friday show that the wealth of Australia’s wealthiest households has grown much faster than the wealth of the rest.

Household net worth by quintile (top fifth to bottom fifth)

AUD millions, top quintile is the wealthiest 20% of households.
ABS 6523.0

Over the course of the 20th century, income equality has been U-shaped, a point noted by French economist Thomas Piketty and Australia’s Productivity Commission.

In Australia, the income share of the top 1 per cent peaked at 14% in 1950, then fell to a low of 5% in the early 1980s before climbing again to 9% by 2015.

Wealth inequality has also followed a long term U-pattern, and in many countries wealth is even more concentrated than income.

The Productivity Commission finds that in Australia, a person at in the top 10% of wealth distribution has 40 times as much wealth as a person in the bottom 10%. That person has four times as much income.

Income shares of the top 1%, by country

Per cent of unequivalised gross taxable income earned by the top 1% of adult income earners, 1913 to 2013.
Productivity Commission, 2018

In a paper to be presented to the Australian Conference of Economists in Melbourne on Tuesday, my colleague Monica Jurin and I shed light on wealth inequality over the past three decades through the lens of Australia’s super rich – the richest 200 households and families.

The super rich are changing

The BRW/AFR Rich List, updated since 1984

Based on the Rich List, compiled by the Business Review Weekly since the 1980s, and now updated annually by the Australian Financial Review, we examine the importance of inherited wealth versus entrepreneurship among Australia’s super rich.

The Rich List confirms the rise in wealth inequality. In 2019, the richest 200 families accounted for 3.6% of the aggregate net worth of all Australian families, up significantly from 2.3% in 1989.

But the importance of inherited wealth appears to have diminished.

Those with inherited wealth and family businesses today make up one-third of the super rich, well below 43% in 1989, with a gradual decline over each of the past three decades. Inherited wealth by itself accounts for 37% of the Rich List’s net worth today, well below 55% in 1989.

The emergence of technology entrepreneurs such as Mike Cannon-Brookes and and Scott Farquar, founders of software company Atlassian, stand out.

Today, the technology sector accounts for almost 8% of the Rich List’s net worth, compared to almost none in 1989.

The results seem somewhat less egalitarian when we examine whether those on the list have appeared on it before.

They’ve more persistence, less inheritance

For instance Frank Lowy, co-founder of Westfield, is considered to be self made. But once on the list, he remained on in each of the four decades we examined.

Whatever the sources of one’s entry to the Rich List, members like Mr Lowy provide evidence of persistence. Conditional on being on the list a decade earlier, members have a slightly higher probability of remaining on it than they did in 1999, controlling for death and other factors.

Our findings complement those of Steven Kaplan and Joshua Rauh who observe similar patterns in the Forbes 400 list in the US.

Here, and in the United States

They find that inherited wealth has become less important and being college educated has become more important.

In Australia we find that a substantially higher share of the richest individuals are tertiary qualified today than they were in 1989, but we are reluctant to draw strong conclusions because the entire society has greater access to tertiary education than it did in 1989.

The super rich have occupied a unique place in modern Australian culture since the emergence of conspicuous entrepreneurs and the emergence of the Rich List in the 1980s.

They are changing, and probably in a good way, even as inequality is growing.

Salvatore Ferraro, Lecturer, RMIT University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Simple fixes could help save Australian consumers from up to $3.6 billion in ‘loyalty taxes’

Posted on July 15, 2019 by particularkev

On average, customers renewing their insurance policy now pay 34% more than new customers.
http://www.shutterstock.com

Allan Fels, University of Melbourne

A “loyalty tax” occurs when discounts are offered to new customers while longer-term customers pay more. Often this involves increasing premiums at the first and subsequent renewals.

As the NSW government’s Insurance Monitor, charged with making sure insurance companies do not charge unreasonably high prices or mislead policy holders, I have had my office research the prevalence of loyalty taxes.

Our research last year showed, on average, customers renewing their insurance policy paid 27% more than new customers. Our most recent data indicates the gap has risen to 34%. This translates to hundreds of dollars for the average home and contents insurance policy.

Loyalty taxes appear to be widespread in Australia. The Australian Competition and Consumer Commission concluded from different pricing inquiries that loyal customers of both banks and energy providers end up paying more. It also demonstrated the price difference for insurance in northern Australian – with one insurer on average charging renewing customers 15-20% more than new customers.

In Britain, regulators have calculated that customers are, by their fifth renewal, paying about 70% more than a new customer. The Competition and Markets Authority estimates the total cost of loyalty taxes in five British markets – mortgage, savings, home insurance, mobile phone contracts and broadband – to be about £4 billion (about A$7 billion) a year.

Translating this British estimate to the equivalent sectors in Australia (taking into account differences in population and GDP), the cost to consumers could be as high as A$3.6 billion, or at least $140 a year per person. This estimate does not include the energy sector, where evidence suggests the practice of charging longstanding customers more is rife.

Deceptive practice

Discounting to win new customers is not fair if the costs of that discount are passed on to longstanding customers. It discriminates against people who do not or cannot easily switch to another supplier. Vulnerable consumers – elderly consumers, those on low incomes, low education, or those with a disability – are disproportionately affected.

Complicated pricing structures often make it hard for consumers to compare quotes to see if one deal is better than another.

Consumer awareness of the loyalty tax appears to be low. It’s quite possible they may not be aware they are paying more each year. Companies can get away with making large price increases over successive renewals with little fear a customer will switch.

This practice is deceptive and falls short of community expectations. Greater respect for loyal customers is something the Hayne Royal Commission said financial institutions should have better regard for.

An important reform

In NSW, in my role as Insurance Monitor, I introduced a requirement that insurers must display last year’s premium on the renewal notices to policyholders. The information is provided in a similar way as it is on a domestic water bill.
It’s now a mandatory requirement in NSW, coming into effect this month.

But the good news is that all of the major insurers have decided to make the change nationally.

Ensuring customers can see just how much their bill has gone up since last year is a significant reform – one I have been pushing over the past five years, since I was involved in monitoring the pricing of insurance in the context of an insurance levy reform in Victoria.

Information empowers consumers. It puts pressure on insurers to justify any increases.

If you are not happy with the increase, or the explanation for it, you should shop around and reassess your options.

You will need to get a couple of quotes. Our research shows major variations in insurance quotes for identical homes with identical risks. Every quarter we seek quotes for a specified home with identical risk, and the highest quotes are up to 2.7 times that of the cheapest.

More can be done

The insurance market is in many respects like other sectors. While there are lots of brands to choose from, the market is highly concentrated and not particularly competitive. Like the banking industry, there are just four major players.

The larger problem, however, is on the demand side. Consumers are generally not well informed. The complexity of products and the large amount of fine print in contracts makes it hard for customers to tell if they are getting a fair deal.
Once they’ve made a choice, most will not think about switching, because it’s time-consuming, costly and inconvenient.

I hope this reform will help increase awareness of what consumers are paying – and not just for insurance. I encourage governments and policymakers around Australia to support and continue with reforms aimed at better disclosure for consumers. NSW has taken a small step. But much more can be done.

Allan Fels, Professorial Fellow, University of Melbourne

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Vital signs: we need those tax cuts now, all of them. The surplus can wait

Posted on July 14, 2019 by particularkev

If you’re going to stimulate the economy, it’s wise not to wait.
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Richard Holden, UNSW

In an enormous week for economic news at the start of the month, parliament passed the government’s three-stage personal income tax plan, and the Reserve Bank cut official interest rates to an unprecedented low of 1%.

It happened against the backdrop of a flagging economy in dire need of stimulus.

As the bank cut rates to a record low, its governor Philip Lowe again warned about the waning power of rates (monetary policy) to lift the economy.

At the Darwin community dinner after the board meeting he said:

Monetary policy does have a significant role to play and our decisions are helping support the Australian economy. But, we should not rely on monetary policy alone. We will achieve better outcomes for society as a whole if the various arms of public policy are all pointing in the same direction.

Lowe and many others – including yours truly – have repeatedly pointed out that spending on physical and social infrastructure can do what lower rates can’t do well – boost the economy while lifting its productivity. So, too would other productivity-enhancing reforms, particularly in the labour market.

And, of course, the government’s tax cuts will also stimulate the economy when they come into effect.

With tax cuts, timing’s the thing…

The obvious problem is that much of stimulus from those tax cuts will happen years from now, rather than today.

What the government should have done was insist on enacting all three stages of their tax plan immediately. Not staggered over several years, not in 2024-25. Now.

That would have, of course, pushed the budget into deficit in the short run, and that would would have run counter to the government’s narrative about being responsible economic managers.

But how responsible is it to prioritise one’s own political brand over the economic health of the nation?

Let’s not forget where the timing of the government’s tax plan came from. 2024-25 is outside the budget’s so-called “forward estimate” period and thus the impact on the deficit or surplus projections is not apparent.

It was the same rationale that underpinned the glacial, decade-long pace at which the government’s “enterprise tax plan” was to move to a 25% company tax rate. And it is the same set of dodgy accounting tricks that Wayne Swan was a master of for everything from health to education spending commitments.

…and the timing could be immediate

Productive infrastructure spending is hard to enact quickly. Spending on social infrastructure like education and training has a long lead time.

And structural reform of the industrial relations system might is probably the hardest and longest of all to put in place.

They are real constraints.

The Reserve Bank faces another, the so-called “zero lower bound” of conventional monetary policy and the complexities and uncertainties of unconventional policies such as quantitative easing.

But a government which won a mandate for its tax policies, and who frankly has the Labor opposition in a tailspin, could have insisted on all three stages of the tax cuts immediately.

The only thing standing between the economy and the aggressive fiscal stimulus it needs is the government’s obsession with balancing the budget regardless of the circumstances.

We’re not in the best of times

Don’t get me wrong, I think debt and deficits most certainly do matter. The government deserves credit for chipping away at the structural budget deficit, and we shouldn’t be running deficits in good economic times.

But we’re not in good economic times. We’re standing on the precipice of the first recession in nearly three decades. We’re looking at highly uncertain global conditions, domestic economic growth that has slowed to a trickle, sluggish wages growth, persistently high underemployment, and even the possibility of Japanese-style deflation.

The irony is that if, with the failure to enact sufficiently bold stimulus, we do tip into a recession, the red ink will flow all through the budget. Unemployment benefits and welfare payments will rise, personal and corporate income receipts will fall, GST revenue will drop. And young people who enter the labour market during a recession will suffer for years to come.

The downsides of not enacting sufficient fiscal stimulus far outweigh whatever benefits there are of a glide to path to budget balance while avoiding a recession.

It’s certainly not the time for hand-wringing

Coming back to Lowe’s admonition that we need the “various arms of public policy…pointing in the same direction”, here’s where we currently stand: The bank has acted, but far too late. For years it told us that 5% unemployment was as good as it could get long-term, to be patient and to wait for higher wage growth and inflation.

It’s been a mere five weeks since Lowe stopped impersonating Charles Dickens’ character Wilkins Micawber, who was fond of saying “something will turn up”.

Now the treasurer Josh Frydenberg is giving us his version of the same routine. On one hand he says personal income tax cuts are crucial to boosting employment and spending. On the other hand, he says we’d better wait.

The Australian economy can’t afford to wait for aggressive stimulus. The government has shown more concern for its political brand than for our economic health.

It isn’t what a responsible steward would do.

Richard Holden, Professor of Economics, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The new Mabo? $190 million stolen wages settlement is unprecedented, but still limited

Posted on July 13, 2019 by particularkev

Thalia Anthony, University of Technology Sydney

The Queensland government’s in-principle agreement to pay A$190 million in compensation for the wages withheld from more than 10,000 Indigenous workers is a watershed moment for the stolen wages movement.

Indigenous people across Australia have been fighting for their denied and withheld wages for decades, both on the streets and in the courts. There have been some victories along the way and many setbacks.

The significance of the Queensland settlement (to settle a class action) is that it marks the first recognition these claims have legal as well as moral and political merit. Its ramifications are potentially limited, however, given the full injustice of how Indigenous wages were stolen.

A significant contribution

Historically Aboriginal and Torres Strait Islander men and women found work in farming, mining, roadbuilding, irrigation, fencing, gardening, pearling, sealing, fishing and domestic duties. But they were most concentrated in the cattle industry of northern Australia, from Western Australia to Queensland.

Tens of thousands worked on cattle stations from the 1880s to 1970s. The beef industry could not have survived without them. In 1913, the federal government’s Chief Protector of Aborigines, Baldwin Spencer, noted that “under present conditions, the majority of cattle stations are largely dependent on the work done by black “boys”. In the 1930s, when the rest of the economy floundered in the Great Depression, Indigenous labour helped keep the industry profitable.

Cattlemen at Victoria River Downs Station, Northern Territory, in 1953.
Frank H. Johnston/National Library of Australia

Systemic stealing

Indigenous workers were entitled to be paid two-thirds of other workers, but even then employers often paid them less. Sometimes the low value of their wages was disguised by being paid in food and clothing rations. Sometimes workers were provided “store credit”, which could only be used to buy exorbitantly priced items.

Station managers may have justified under-payment on the basis they were “caring” for workers through providing scant food, clothing and accommodation.

Governments, meanwhile, “withheld” income – often putting money into trust funds that Indigenous people were unable to access. The Queensland government’s $190 million offer is to settle a class action claim for it misappropriating such trust funds.

The fact Indigenous people were vulnerable to such exploitation for decades was made possible by an intricate legislative regime that gave the state expansive powers over their lives. In all states and territories, Aboriginal Protection Acts gave the government officials the power to control the money earned by Indigenous workers.

In Queensland, historian Rosalind Kidd has estimated that 4,500 to 5,500 Indigenous pastoral workers may have lost wage entitlements worth more than $500 million between 1920 and 1968.

Redress schemes

There have been redress schemes in Western Australia, Queensland and New South Wales.

The Queensland government set up the first redress scheme in 2002. It set aside $55.6 million to compensate any individuals who could supply documentary evidence their wages or savings were taken by the Queensland government. If they could do so – and there was a deadline of 2006 on claims – the scheme provided an ex gratia payment of $2,000 to $4,000.

These conditions set a high bar, and $21 million went unclaimed.

Western Australia established its scheme in 2012. It also involved a small ex gratia payment ($2,000) with a limited window to make claims. Claimants called the scheme insulting and mean-spirited. The ABC reported a source that said state treasury officials agreed individuals were owed as much as $78,000, and the government kept the work of its stolen wages taskforce quiet for years, waiting for potential claimants to die.

In distinction to these two schemes, the NSW Trust Funds Repayment Scheme (2006 and 2010) matched the wages withheld in trust funds between 1900 and 1969. It paid $3,521 for every $100 owed, or an $11,000 lump sum where the amount could not be established. This was the closest model to a reparations scheme, though also inhibited by bureaucratic requirements and time limitations.

Due to the limitations of all these state redress schemes, in 2006 a Senate Inquiry into Stolen Wages recommended a national scheme. But no federal government since has acted on this recommendation.

Legal claims

Stolen wages claimants have taken their cases to court in Western Australia, New South Wales and Queensland – but it is only in Queensland that they have had some success.

One of those is the case of James Stanley Baird, who sued the Queensland government for withheld wages on the basis that paying under-award wages to Indigenous workers was in breach of the Racial Discrimination Act 1975. The state government compensated Baird and other plaintiffs the difference owed to them in damages and provided an apology.

Implications

The current settlement is based on a legal claim that the Queensland government breached its duty as a trustee and fiduciary in not paying out wages that were held in trust. The outcome is the most significant repayment for stolen wages plaintiffs in Australian history. Yet the benefits may be confined.

First, in Queensland there is a rich archive of documents (substantially unearthed and analysed by historian Rosalind Kidd) to prove the government misappropriated funds. Such a record may not exist elsewhere.

Second, the settlement only applies to wages placed in “trust accounts”. It has no implications for wages denied to Indigenous workers in other ways, such as by private employers who booked down wages or otherwise refused to pay.

For justice for all wronged Indigenous workers, there needs to be broad-based reparations for stolen wages. This requires truth commissions and a commitment by governments and anyone else that profited from that theft to restore what is owed.

Thalia Anthony, Associate Professor in Law, University of Technology Sydney

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Super shock: more compulsory super would make Middle Australia poorer, not richer

Posted on July 12, 2019 by particularkev

Open and shut. Most Australians would be worse off over their lifetimes if compulsory super contributions were lifted.
Shutterstock

Brendan Coates, Grattan Institute and Owain Emslie, Grattan Institute

Compulsory superannuation was sold to Australians on the basis that it would make us better off.

But as the government prepares for an independent inquiry into retirement incomes, new Grattan Institute research finds that increasing compulsory contributions from 9.5% of wages to 12%, as has been legislated, would leave many Australian workers poorer over their entire lifetimes.

They would sacrifice a significantly increased share of their lifetime wage in exchange for little or no increase in their retirement income.

The typical worker would lose about A$30,000 over her or his lifetime.

More compulsory super means lower wages

Superannuation delivers higher incomes in retirement at the expense of lower incomes while working.

Yet the superannuation lobby usually presents only one side of the pact, urging an increase in compulsory super to get the higher retirement incomes while ignoring the income that workers have to forgo to get them.

Compulsory super contributions are paid by employers. But they appear to come out of funds the employers would otherwise have spent on wages.

This means increases in compulsory super come at the expense of wage increases – something that was acknowledged when compulsory super was set up (indeed, it was part of the reason it was set up) and has been acknowledged by advocates of higher contributions, including the former opposition leader Bill Shorten).

Grattan Institute calculations suggest that lifting compulsory super to 12% by 2025 will take up to A$20 billion a year from workers’ pockets. For most, the trade-off isn’t worth it.

The reality is that most Australians can already look forward to a better living standard in retirement than they had while working – even if they interrupt their careers to care for children. Workers with interrupted employment histories lose super in retirement, but get larger part-pensions.

The poorest Australians get a clear pay rise when they retire: the age pension is worth more than their after-tax income while working.

Other Grattan Institute research finds retirees are more comfortable financially than any other group of Australians and are much less likely to suffer financial stress than working-age Australians.

It needn’t lead to better retirement

So what about Middle Australia?

Despite the “magic” of compound returns, just about all of the extra income from a higher super balance at retirement would be offset by lower pension payments, due to the pension assets test.

It is always possible the pension rules will change, but it isn’t usually regarded as wise to assess proposals on the basis of changes that haven’t happened and aren’t being suggested.

Pension payments themselves would also be lower under a 12% superannuation regime. They are benchmarked to wages, which would be lower if employers have to put more into super.

The graph below shows that the big winners from higher compulsory super would be the wealthiest 20% of Australian earners, who would benefit from extra super tax breaks and would be unlikely to receive the age pension anyway.

Higher compulsory super redistributes income from the middle to the top. Middle earners would be no better off.

Over a lifetime, it could be a net loss

As higher compulsory super would leave Middle Australians no better off in retirement, but poorer while working, it follows that it would make them poorer over their entire lives.

How much poorer? We calculate that, after adjusting for inflation, the typical (median) 30-year-old Australian worker earning A$58,000 today would lose about 2.5% of wages each year and get less than a 1% boost to retirement income.

As a result, that person’s lifetime income would be almost 1% lower – about A$30,000 lower.

A post published on the Grattan Blog today gives more detail on the method we used to calculate the impact of higher compulsory super on lifetime incomes.

And it would cost the budget

Higher compulsory super might be justified if it saved the budget money on the pension – because those savings could be used to compensate middle-income earners via lower taxes or more services.

But in fact, higher super would cost the budget.

Our modelling shows that lifting compulsory super to 12% of wages would cost taxpayers an extra A$2 billion to A$2.5 billion per year in super tax breaks, overwhelmingly directed at high-income earners.

Those extra super tax breaks would dwarf any budget savings on the age pension until about 2060 – by which time there would be 80 years of budget costs from compulsory super to pay back before the whole exercise saved the government money.

Here’s the bottom line, worth keeping in mind in the lead-up to the independent inquiry: it’s hard to think of a policy less in the interests of working Australians than more compulsory super.

Brendan Coates, Program Director, Household Finances, Grattan Institute and Owain Emslie, Associate, Grattan Institute

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Build to rent could shake up real estate but won’t take off without major tax changes

Posted on July 9, 2019 by particularkev

Hal Pawson, UNSW

In the wake of slumping demand for apartment building, it’s little wonder the multi-unit housing industry has been eagerly eyeing a possible new residential product: “build-to-rent”.

In fact, the latest figures show that apartment-building construction starts were down 36% in 2018 from 2016. But how much will this little-known type of housing solve our housing problems?

Build-to-rent won’t be a silver bullet solution for Australia’s housing affordability stress, but it does have potential to tick the box on several important public policy objectives. These include widened housing diversity, enhanced build standards, and a better-managed, more secure form of private rental housing.

But for this to happen, Australia’s tax settings need adjustment.

What is ‘build-to-rent’?

This refers to apartment blocks built specifically to be rented, usually at market rates, and held in single ownership as long-term income-generating assets.

The enduring owner might be, for instance, an insurance company, an Australian super fund, a foreign sovereign wealth fund, a private equity firm, or the building’s developer.

Although new in Australia, build-to-rent is quite common in many other countries. Under its North American name, “multi-family housing”, the format has generated more than 6.3 million new apartments since 1992 in the US alone. And in the UK, a build-to-rent sector has led to 68,000 units built or under construction since 2012.

A scattering of build-to-rent schemes are already underway or completed, mainly in inner Sydney and Melbourne. And they may prove to be the forerunners of a new Australian residential property sector – but that is far from guaranteed.

In Australia, our private rental market is almost entirely owned by small-scale mum-and-dad investors, so this kind of housing would be a largely new departure from typical Australian real estate.

Potential benefits

The build-to-rent development model, involving a long-term owner commissioning an entire building, creates an incentive for higher, more enduring quality than the standard “build-to-sell” apartment development approach.

Importantly, build-to-rent is a long-run investment that caters for rental demand, which tends to grow steadily.

This means the model is largely immune to the fickle changes in housing demand resulting from typically short time horizons and primarily speculative instincts of individual buyers traditionally dominant in our market.

So at its full potential, this new housing product could introduce a valuable counter-cyclical component into the notoriously volatile residential construction industry, helping to offset damaging booms and busts. In other words, build-to-rent can create stability in the Australian property market.

How build-to-rent can incorporate affordable housing

Optimistically, some have claimed build-to-rent could also provide an “affordable housing” fix for many earners who are doing it tough in our existing private rental market.

But this could be possible only with the aid of major government funding or planning concessions.

Ideally, housing at rents affordable to low or moderate income earners would be included in predominantly market-rate build-to-rent schemes. Indeed, one major construction industry player recently advocated this as a standard expectation.

So how should affordable housing be provided in this case?

To find out, our analysis compares the cost of developing affordable housing by a for-profit company with development under a not-for-profit community housing provider.

Thanks to that non-profit format, and the tax advantages that go along with it, community housing providers can, in fact, construct affordable rental housing at significantly lower cost than their for-profit counterparts. Less subsidy is therefore needed.

Nonetheless, government help in some form will be essential to enable an affordable housing element. The most painless way for this to happen, from the government perspective, is through allocating sections of federal or state-owned redevelopment sites to community housing providers at discounted rates.

Encouragingly, this strategy was recently advocated by newly designated federal housing minister Michael Sukkar.

Such designation of government-owned sites could, for instance, be factored into large-scale urban renewal projects like Sydney’s Central-to-Eveleigh and Rozelle Bays. When complete, it could fulfil the widely voiced demand that 30% of these developments should be affordable housing.

Levelling the playing field

Our modelling shows that under current conditions, even market-rate build-to-rent projects are barely viable – at least in Sydney.

The inflated price of developable land in Australia’s urban housing markets is an important contributing constraint. But our research also identifies a range of government tax settings that disadvantage build-to-rent, compared with both mum-and-dad-investors and traditional build to sell developers.

Removing less favourable land tax and GST treatment could markedly improve build-to-rent feasibility.

From a housing policy perspective, there’s also a case for the federal government to reconsider its recent “withholding tax” decision that treats overseas-based institutional investment in rental property less favourably than investment in commercial property.

Since such global funds would likely lead the establishment of a new Australian build-to-rent asset class, revisiting the withholding tax changes could be a significant step in making build-to-rent a reality in Australia.

In any case, build-to-rent is no simple solution for Australia’s affordable housing shortage.

But even as a market-rate product, it could fulfil several important public policy objectives. How far it might do so in practice is something that governments rightly need to weigh up when considering industry-proposed tax and regulatory reforms.

Hal Pawson, Associate Director – City Futures – Urban Policy and Strategy, City Futures Research Centre, Housing Policy and Practice, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

To be a rising star in the space economy, Australia should also look to the East

Posted on July 6, 2019 by particularkev

Diversifying its space partners could help Australia avoid getting pushed around by the space rivalry of China and the United States.
Alex Cherney/CSIRO/EPA

Nicholas Borroz, University of Auckland

The UK’s space agency is already planning for spaceflights to Australia, taking just 90 minutes. This week it announced the site of its first “spaceport”.

Where exactly a spacecraft might land in Australia is still anyone’s guess.

Australia wants to become a bona fide space power in the emerging space economy – exemplified by the rise of private space companies such as SpaceX, Virgin Galactic, Blue Origin and others.

But the UK Space Agency’s well-developed plans to build Europe’s first spaceport in Cornwall, southwest England, as well as another to launch rockets carrying micro-satellites in Sutherland, north Scotland, shows the Australian venture has a lot more groundwork to do.

The Australian government founded the Australian Space Agency just one year ago. It is about to invest tens of millions of dollars in international space projects.

But right now, it could be argued, it has a large problem: How will Australia connect to the rest of the international space economy?

Focused on old friends

Before the Australian Space Agency was founded, Australia’s main international relations regarding outer space were with the United States and some European countries. It has long hosted ground stations for NASA and the European Space Agency.

It has cooperated with other international partners to a lesser extent. The most notable project is the Square Kilometre Array, an astronomy project being built in Australia and South Africa. International partners include Canada, China, India and New Zealand.

Though Australia has indicated it wants to “open doors internationally” for space partnerships, so far it has been focused on building up ties with its old friends in the US and Europe.

The Australian Space Agency has been talking to NASA about cooperation, including on NASA’s Lunar Gateway effort to build a permanent presence on the Moon. It has signed statements of strategic intent with Boeing and Lockheed Martin, two large American aerospace firms that are NASA contractors. A private northern Australian rocket launch company reports it is negotiating to launch NASA sounding rockets next year.

The US communications firm Viasat plans to build a ground station near Alice Springs. American universities are the only foreign partners of Australia’s newly opened CubeSat and unmanned aerial vehicle research centre, CUAVA.

With the Europeans, the Australian Space Agency has signed memoranda of understanding with France and Britain. The Italian space company SITAEL has expanded to Adelaide, where the Australian Space Agency is based. The federal government’s new SmartSat cooperative research centre has a consortium of nearly 100 industry and research partners. One is the European aerospace giant Airbus, with which the Australian Space Agency has also signed a statement of strategic intent.

These are still early days, but outside of partnerships with the Americans and Europeans, the only major international developments since the Australian Space Agency’s founding are with Canada and the United Arab Emirates.

Ties with China and India

So should Australia diversify its relations?

On the one hand, tying Australia’s space economy to the Americans and Europeans makes sense. Both have large markets and developed space industries. Close ties to both will likely ensure a steady stream of business.

On the other hand, there are benefits to pursuing a new type of multilateralism that is less US- or Euro-centric.

Through the Square Kilometre Array project, Australia has links with China and India. Compared to the Americans and Europeans, these two countries have different competitive strengths in the global space industry.

Positioning between them could put Australia in a unique place in the global production networks of space science and technology. This is particularly so if relations between some of these larger players are distant (the United States and China, for example). Australia could benefit from being a go-between.

Australia could also choose to supplement these larger relationships with ties to smaller countries. Especially with other new entrants into the space economy – New Zealand established a space agency in 2016, for example – there are common points of interest.

All are likely to want to diversify relationships with big space powers and not be pushed into dealing with just one or another. Again, friction between the United States and China comes to mind. Smaller space powers could band together to maintain their ability to make their own independent decisions.

There is no right answer about how Australia should proceed with international engagement in the space economy. More accurately, there are different right answers depending on what sort of space power Australia ultimately wants to become.

Australia’s space agency is just one year old. The country does not need to automatically continue its Western orientation. It can instead recreate itself as a truly international actor in the new space economy.

Nicholas Borroz, PhD candidate in international business and comparative political economy, University of Auckland

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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